Commentary and musings on the complex, fascinating and peculiar world that is securities regulation

Wednesday, November 17, 2010

Treasury Official Outlines Role for Office of Financial Research

Mandated by Dodd-Frank to assist the Financial Stability Oversight Council in its work , the Office of Financial Research is working with regulators and industry, laying the groundwork to standardize financial reporting and develop reference data that will identify and describe financial contracts and institutions.

Data standardization will provide for more consistent and complete reporting, said Deputy Treasury Secretary Neil Wolin, making the data available to decision makers easier to obtain, digest, and utilize. The OFR is created by Title I, Subtitle B, authored by Senator Jack Reed for the logical reason that the Council will need reliable data from the SEC and other federal financial regulators to identify systemic risk in the financial system.

In remarks to the LSE, Secretary Wolin said that, over the coming weeks and months, the OFR will begin to define a set of standards for reporting of financial transaction and position data. The OFR will collaborate with the financial industry, data experts, and regulators to develop an approach to standardization that works for everyone.

He assured the industry that Treasury is mindful that the OFR must not duplicate existing government data collection efforts or impose unnecessary burdens.That is why Treasury is working with the regulators to catalogue carefully the data they already collect to ensure the OFR relies on their data whenever possible.The OFR is also exploring ways in which it could act as a central warehouse of data for the regulatory community, which could generate efficiencies and interagency cooperation.

For example, new reporting requirements in the Dodd-Frank Act, which are consistent with reforms supported by the G-20, will make possible a comprehensive cataloging of derivatives in order to track their redistribution of risk through the system.Data standards will make it easier for individual firms to assess their own risks and will improve discipline by giving market participants better information on what individual firms are doing.

Beyond establishing standards, the OFR is also required to develop and publish key reference data that will describe financial institutions and contracts.Regulators and supervisors, as well as private firms and investors, rely on such reference data to analyze risk.The OFR is beginning the effort to put all of this in place.

In his view, the the true measure of success will be in how it facilitates more robust and sophisticated analysis of the financial system, both for the government and the private sector.This is critical for the Council as well as its international counterparts.